CSX
Corporation (“CSX”) together with its subsidiaries (the “Company”), based in
Jacksonville, Florida, is one of the nation's leading transportation
suppliers. The Company’s rail and intermodal businesses provide
rail-based transportation services including traditional rail service and the
transport of intermodal containers and trailers.
Rail
CSX
Transportation, Inc.
CSX’s
principal operating company, CSX Transportation, Inc. (“CSXT”), provides an
important link to the transportation supply chain through its approximately
21,000 route mile rail network, which serves major population centers in 23
states east of the Mississippi River, the District of Columbia, and the Canadian
provinces of Ontario and Quebec. It serves over 70 ocean, river and
lake ports along the Atlantic and Gulf Coasts, the Mississippi River, the Great
Lakes and the St. Lawrence Seaway. CSXT also serves thousands of
production and distribution facilities through track connections to more than
240 short-line and regional railroads.
Other
Entities
In
addition to CSXT, the rail segment includes non-railroad subsidiaries Total
Distribution Services, Inc. (“TDSI”), Transflo Terminal Services, Inc.
(“Transflo”), CSX Technology, Inc. (“CSX Technology”) and other
subsidiaries. TDSI serves the automotive industry with distribution
centers and storage locations, while Transflo provides logistical solutions for
transferring products from rail to trucks. CSX Technology and other
subsidiaries provide support services for the Company.
Intermodal
CSX
Intermodal, Inc. (“Intermodal”) is a stand-alone, integrated intermodal
transportation provider linking customers to railroads via trucks and
terminals. Containers
and trailers are loaded and unloaded from trains, and trucks provide the link
between intermodal terminals and the customer.
Lines
of Business
Together,
the rail and intermodal segments generated $9 billion of revenue during 2009 and
served four primary lines of business:
·
The
merchandise business is the most diverse market with nearly 2.1 million
carloads per year of aggregates (which includes crushed stone, sand and
gravel), metal, phosphate, fertilizer, food, consumer (manufactured goods
and appliances), agricultural, paper and chemical products. The
merchandise business generated approximately 48% of the Company’s revenue
in 2009 and 36% of volume.
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CSX
CORPORATION
PART
I
Coal,
which delivered approximately 1.6 million carloads of coal, coke and iron
ore to electricity generating power plants, ocean, river and lake piers
and terminals, steel makers and industrial plants, accounted for
approximately 30% of the Company’s revenue in 2009 and 27% of
volume. The Company transports almost one-third of every ton of
coal used for generating electricity in the areas it
serves.
Automotive,
which delivers finished vehicles and auto parts, generated approximately
6% of the Company’s revenue and 4% of the Company’s volume in
2009. The Company delivers approximately 30% of North America’s
light vehicles, serving both domestic manufacturers and the increasing
number of global manufacturers that produce cars in the United
States.
Intermodal,
which combines the superior economics of rail transportation with the
short-haul flexibility of trucks, offers a competitive cost advantage over
long-haul trucking. Through its network of more than 50 terminals,
Intermodal serves all major markets east of the Mississippi and transports
mainly manufactured consumer goods in containers, providing customers with
truck-like service for longer shipments. For 2009, Intermodal
accounted for approximately 13% of the Company’s total revenue and 33% of
volume.
Other revenue, which includes revenue
from regional subsidiary railroads, demurrage, switching and other incidental
charges, accounted for 3% of the Company’s total 2009
revenue. Revenue from regional railroads includes shipments by
railroads that the Company does not directly operate. Demurrage
represents charges assessed when freight cars are held beyond a specified period
of time. Switching revenue is generated when CSXT switches cars
between trains for a customer or another railroad.
Other
Businesses
CSX’s
other holdings include CSX Real Property, Inc., a subsidiary responsible for the
Company’s real estate sales, leasing, acquisition and management and development
activities. These activities are classified in other income – net because
they are not considered by the Company to be operating
activities. Results of these activities fluctuate with the timing of
real estate sales. In 2009, CSX sold the stock of a subsidiary that
indirectly owned Greenbrier Hotel Corporation, owner of The Greenbrier
resort. These results are now classified as discontinued
operations. For more information, see Note 14, Discontinued
Operations.
Financial
Information about Operating Segments
See Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations for operating revenue, operating income and total assets by segment
for each of the last three fiscal years.
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Company
History
A leader
in freight rail transportation for more than 180 years, the Company’s roots date
back to the early nineteenth century when The Baltimore and Ohio Railroad
Company (“B&O”) – the nation’s first common carrier – was chartered in 1827.
Since that time, the Company has built on the foundation laid by early pioneers
who had a vision to create a railroad that could safely and reliably service the
ever-increasing demands of a growing nation.
Since its founding, numerous railroads
have combined with the former B&O through merger and consolidation to create
what has become CSX. Each of the railroads that combined into the CSX
family brought unique and valuable geographical reach to new markets, gateways,
cities, ports and transportation corridors.
CSX was
incorporated in 1978 under Virginia law. In 1980, the Company completed the
merger of the Chessie System (“Chessie”) and Seaboard Coast Line Industries
(“Seaboard”) into CSX. The merger allowed the Company to connect
northern population centers and Appalachian coal fields to growing southeastern
markets. In 1986, the Chessie and Seaboard operating entities were transferred
to the rail entity CSXT, which was created through the
merger. Intermodal was originally formed in 1986 in order to provide
nationwide, door-to-door intermodal service.
In 1997,
CSXT and Norfolk Southern Railway jointly acquired the rights to operate
Conrail, Inc. (“Conrail”) and then in 2004, CSXT acquired an allocated portion
of Conrail’s assets, which CSXT operated. Conrail was formed in 1976
from several financially troubled northeast railroads to restructure and revive
the region’s railroads. The Company’s acquisition of key portions of
Conrail allows CSXT to link the northeast, including New England and the New
York metropolitan area, with Chicago, midwest markets and the growing areas in
the southeast that were already served by CSXT. This current rail
network allows the Company to directly serve every major market in the eastern
United States with safe, dependable, environmentally friendly and fuel efficient
freight transportation and intermodal service.
5
Regulatory
Environment
The
Company's operations are subject to various federal, state and local laws and
regulations, generally applicable to many businesses in the United States.
The railroad operations conducted by the Company's subsidiaries, including CSXT,
are subject in many respects to the regulatory jurisdiction of the Surface
Transportation Board (“STB”), the Federal Railroad Administration (“FRA”), and
its sister agency within the U.S. Department of Transportation (“DOT”), the
Pipeline and Hazardous Materials Safety Administration
(“PHMSA”). Together, FRA and PHMSA have broad jurisdiction over
railroad operating standards and practices, including track, freight cars and
locomotives, and hazardous materials requirements. Additionally, the
Transportation Security Administration (“TSA”), a component of the Department of
Homeland Security (“DHS”), has broad authority over railroad operating practices
that may include homeland security implications.
Decisions
and rulemaking by these and other agencies can significantly affect the
Company’s operations and profitability. For example, in 2008, both
DOT and TSA issued rules that apply to the transportation of certain kinds of
highly hazardous materials. The DOT rules require railroads to
analyze routes used to transport these products and to apply specific criteria
in selecting routes to be used. The new TSA rules place significant
new security and safety requirements on passenger and freight railroad carriers,
rail transit systems, and facilities that ship hazardous materials by rail. In
some cases, state and local laws and regulations can be preempted in their
application to railroads by the operation of these and other federal
authorities.
Although
the Staggers Act of 1980 significantly deregulated rail rates and much of the
rail traffic of the Company's subsidiaries is currently exempt from rate
regulation by agency decision, the STB has broad jurisdiction over railroad
commercial practices, including some railroad rates, routes, fuel surcharges,
conditions of service and the extension or abandonment of rail
lines. This includes jurisdiction over freight car charges, the
transfer, extension or abandonment of rail lines, rates charged on certain
regulated rail traffic and any acquisition of control over rail common
carriers.
In 2008,
Congress enacted the Rail Safety Improvement Act. The legislation
includes a mandate that all Class I freight railroads implement a positive train
control system (“PTC”) by December 31, 2015. PTC must be installed on
all main lines with passenger and commuter operations as well as those over
which toxic-by-inhalation hazardous materials (“TIH”) are
transported. Implementation of a PTC system is designed to prevent
train-to-train collisions, over-speed derailments, incursions into established
work-zone limits, and a train from diverting off-course onto another set of
tracks through a switch left in a wrong position. Significant capital
costs are anticipated with the implementation of PTC as well as ongoing
operating expenses. CSX estimates that the total cost of PTC
implementation will likely exceed $750 million for the
Company.
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In
December 2009, a proposed bill called the “Surface Transportation Board
Reauthorization Act of 2009” (“STB Reauthorization Bill”) was introduced in the
Senate. If adopted as proposed, this bill could have a material
adverse effect on commercial practices and railroad operations. The
current proposal in the Senate contains fundamental changes in laws that were
designed to sustain the railroads. Some of the proposed changes in the STB
Reauthorization Bill are not yet clearly defined, and others call for new and
broad government involvement into railroad operations. CSX believes
the bill, in its current form, could have a material adverse effect on the
Company’s revenue and operations, as well as the ability to invest in enhancing
and maintaining vital infrastructure. CSX will continue to work
diligently with the Senate staff, as well as with Senators, to forge a balanced
regulatory approach.